Remortgaging your home could give you more choices in relation to your home, regardless of whether you’re going through a transition or are financing home improvements, or looking to secure the best deal.
Although there are many advantages when remortgaging your home however, there are some disadvantages, so thoughtful consideration is required. In this article we’ll walk you through some of the benefits and disadvantages of remortgaging so that you’re in the best position for making a decision.
Why do you need to refinance?
The most straightforward answer to “why to remortgage?” is that it’s about finding the most suitable mortgage that’s suitable for your current situation and your future. But there’s a lot more to think about when trying to determine whether it’s the best option.
Below, we’ve listed a few of the benefits of remortgaging and the most common reasons why people go through the process.
It’s important to note that, even though certain scenarios might be applicable to you, it’s crucial to consider whether it’s the right time to make the mortgage remortgage. One of the most important factors to take into consideration when the timing of your decision is whether the choice will result in a significant cost due to the fact that charges from both lenders could amount to more than what you’ll save over the long term. Be sure to speak with an expert broker to discover whether it’s worthwhile to refinance now.
The tie-in period for you is coming to an end.
The tie-in time period for your loan is that you’re “locked into” in your loan and are unable to get out without having to pay an early repayment fee (ERC) towards your mortgage lender. After this period is over, you are able to generally remortgage to a different agreement without having to pay any ERCs.
A mortgage loan at this time could frequently help reduce or even stop the cost of your mortgage from rising. When the tie-in period is over and you’ll likely be reverted to your loan’s regular variable rate, or SVR (a rate that is set by the lender and able to change both up and down) or their Reversion rate (their SVR, but with a slight discount). Most of the time, but not always, they’ll be determined to be higher than the previous fixed deal thus locking in a higher rate will guarantee that your monthly installment doesn’t increase.
You’d like to get a better deal
There are many options for mortgages in the UK mortgage market is highly competitive, and there’s likely to be excellent deals available. If you discover rates that could lower your monthly payments by a substantial amount, it might be worth exploring a remortgage plan which could help you save money in the long run. We recommend talking to an agent to ensure that any deal is suitable for you, since the product may be more than just a good rate.
You’re looking to change to a different kind of mortgage
Another reason to remortgage is the possibility of moving to a different kind of mortgage from the one you currently have. There are various kinds available which include fixed rate discounts, tracker, discount and SVR mortgages, all with different characteristics that could be beneficial for you (as as drawbacks to think about).
The most commonly used kind that is mortgaged are fixed rate mortgage that fixes your interest rate for the tie-in time, which is why many people hold off until the time is over and then refinance before they switch to the lender’s SVR rate. In addition you can remortgage to another type entirely. It is recommended to speak with an agent if you’d want to learn more about what kinds of mortgages might be beneficial for you.
You’d like more flexibility
Do you think you’d be better off having additional flexibility in your mortgage? You could, for instance, discover that you’re in the situation to overpay, or have periods when your income fluctuates. A mortgage with greater flexibility or access to features that ease your life for you, like holiday payments can be advantageous. Contact the broker you trust if you feel that this is the right choice for you.
Your situation has changed
If you were the first to shop around and then applied for mortgages, you’ll have been rated based on the information you gave to your lender at the time of the application. It also influenced your mortgage offer got. If your life circumstances have changed in the positive direction perhaps you earn more or you have paid off a outstanding debts — you may be qualified for a better rate in the event that you decide to remortgage your home today.
There is a chance that you have been through a change in circumstances in your life that may have changed the requirements for mortgages for example, moving in with someoneelse, changing jobs or another life-changing occasion.
You’d like to cut down the length of your mortgage
If you’re able the cost of paying more that what you’re paying toward your mortgage every month, it might be worthwhile to think about the possibility of reducing your mortgage term by remortgaging. If you are able to secure an interest rate that is lower this means that you’ll be reducing the amount of interest you’ll be paying over the course of the term of the mortgage. It is always advisable to speak with a broker prior to making a major decision, such as the reduction of the length of your loan.
You’d like to sell equity
Remortgages are also an effective method of releasing equity. In simple terms, it is done by taking the equity you’ve built in your home in cash. You can do this by increasing the size of the loan you take out when you remortgage and thereby releasing funds to use to fund house improvements, buying cars as well as consolidating loans.
In this case it is recommended to talk to an expert mortgage broker since you’ll be decreasing your equity, and possibly borrowing more.
What are the advantages of refinancing?
If you think that you may be in a position refinance, it’s worth researching the benefits and disadvantages of doing it. After that, you’ll be able to take a shrewd decision about what’s best for your situation.
You can cut down the amount of your monthly bill.
One of the major benefits of refinancing is that you might be able obtain a better rate which will result in a lower monthly installment. Through a thorough study of the market or seeking advice from an agent, you may locate a loan with a lower rate of interest.
If you’ve been making monthly installments on your current loan for some time it’s likely that you’ve built up equity, and reducing the loan-to-value (LTV) that your mortgage has (the proportion of the loan you take to property’s value). Simply put it means that you now own a larger portion of your home that puts you more secure as compared to the first time you applied for the mortgage. Therefore, the lenders could offer higher rates and terms on any remortgage offer you decide to pursue.
This benefit is especially relevant when you’re nearing the closing the initial tie-in and will soon be transitioning to your lender’s SVR, which is a standard rate. In securing the new rate prior the end of your current rate, you will be able to avoid paying potentially greater monthly costs on an SVR which can be altered at any time at the discretion of the loan provider.
You are in control and feel confident
If you decide fixing your rate on your mortgage through refinancing, you will be sure that your monthly payment will be the same for a predetermined amount of time. This is a great option in the event that you’re approaching the end of your first fixed rate contract.
Because the mortgage will be among your largest monthly expenses, knowing the amount helps you determine the remainder of your month keeping the amount in your mind. It can also help to feel secure since the outlook for the economy is uncertain.
It is possible to make your mortgage payment earlier
If you’ve experienced an increase in your financial conditions since you initially taken out your mortgage, like receiving the lump sum of money or receiving an increase in pay, you may need to contribute more money into your mortgage so that you can get it paid off faster.
The process of refinancing can provide many options to achieve this. One possibility is that you could be able to cut down the term of your mortgage, meaning that you’ll pay more each month , but for a shorter time. This will let you benefit from that additional income and also get the mortgage paid off at a quicker rate.
Another method of putting more money towards an outstanding mortgage would be to go overpay which is basically paying more in return than you are required to each month. It could be that the current deal you have restricts the amount you can pay (many are) and you may be charged a penalty in the event that you overpay. If you refinance, you could find a new offer with the goal of overpaying in mind, and then locate one with better or no limits on overpayments.
You might be able to take out a loan
If you’re seeking to borrow funds for improvements to your home or a vehicle, a vacation or other expense using a mortgage and releasing equity might be an alternative.
It is possible that you have built equity from paying off your mortgage loan and you could also have profited by increasing the worth of your house growing since you purchased it. It could be possible to get equity and reduce your mortgage interest all at once.
We suggest you seek some guidance from an expert financial or mortgage advisor before deciding to take out a loan. It is possible that you can obtain an additional loan on your mortgage which will be less expensive than refinancing. It’s also a good idea to seek guidance on whether this kind of loan is suitable for you.
You might be able to consolidate the debt
If you are in the middle of a short-term loan you may be able to get the money back by mortgage refinancing. This can be used to pay off the debt and consolidate the repayment into one monthly payment.
Be aware that doing this may result in you having to pay more interest total throughout your mortgage term, as compared to the interest you’d be paying on your short-term loan. You’ll also need to let any lender know what you’re planning to accomplish with the funds and this could affect the lender’s choice.
We recommend getting the advice of an advisor to your finances or debt prior to making a major decision, because they might be able to assist you come up with a better option.
What are the disadvantages?
You might prefer the flexibility offered by SVR over a fixed rate
If you decide to refinance and then fix your rate, without changing to SVR, you’ll be unable to benefit from the flexibility that variable rate mortgages are able to provide.
If you want to make monthly overpayments SVR typically does not have limitations or penalties to do such a thing, while fixed rate mortgages typically allow up to 10 percent overpayment. Another benefit that is flexible of SVR mortgages is the fact that they do not tend to come with early repayment charges (ERCs) however you’ll most likely need to pay a fee should you wish to get out of the fixed rate.
It is possible that you will have to cover certain expenses
There are a few fees associated with remortgaging. The most significant one to keep in mind will be the late repayment cost which is normally due when you’re trying to get out your current mortgage contract in the early stages, and are not on an ERC-free contract. However, if you’re planning to remortgage after the expiration of your tie-in time, you’re usually able to do it without penalty, thereby drastically reducing the amount of money involved.
ERCs aren’t the sole cost you could be required to pay. For instance, your lender might charge something like the release of deeds fee as well as an fees for exit. There are also fees associated with the new lender, for example, an appraisal fee and a legal fees, but they can be reduced as a reward to clients.
It’s also important to note that some remortgaging charges tend to be cheaper or waived if you’re switching products to that lender.
Before you take the next step in remortgaging it’s crucial to ensure that all charges don’t cost more than the savings you’ll make with lower rates for the duration of the new contract. It’s recommended that you speak to an agent, who will provide advice on what is advantageous for you, and also assist in finding deals that will give you the most value.
You need to apply for an entirely new lender
Do you want to apply for a remortgage from an unfamiliar lender? They’ll consider you a new customer and you’ll be required to follow the same procedure like when you first made an application for an mortgage. Naturally, this will cause a bit of extra burden on you and add stress to the process, but there are many other ramifications to take into consideration.
Based on your personal circumstances the possibility of remortgaging with another lender can be beneficial or a disadvantage. Positively when you’re in a better financial position than you were when you first got an mortgage, you might be qualified for a better rate. However, this can also work in the opposite direction. When you’re in more difficult than average situation, this can affect any mortgage proposal you receive when you’re rated and you may be better off staying in your current position.
You’ll also have to do additional work if you’ve gone self-employed or established an entirely new company since you last applied for a mortgage and you decide to switch lenders, since you’ll typically have to submit two years’ worth of financial records as well as any other documents requested.
Do you need to refinance your mortgage?
After we’ve looked at the possibilities of when it might be beneficial to refinance in addition to the advantages and disadvantages you should consider whether or not to.
It’s important to keep in mind that the primary two goals of any remortgage deal is to help you save money and to find a deal that meets your needs. It is important to ensure that the savings you’re gaining exceed the cost of changing in the long term and you’re in the right place at the right time and also do your own research on the characteristics of the new product.
We recommend that your next step be to talk to an agent. They can thoroughly assess your needs and offer guidance on what the best alternatives are, aswell in locating remortgage deals that meet your requirements.
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